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Instant Technology, LLC v. Defazio

United States District Court, N.D. Illinois, Eastern Division

May 2, 2014

INSTANT TECHNOLOGY, LLC, an Illinois, limited liability company, Plaintiff,
v.
ELIZABETH DEFAZIO, LAURA REHN, MEGAN MARKER, BETHANY MEEK, ERIN BAUER, JOEL KATZ, ANDREA KATZ individuals, and CONNECT SEARCH LLC, a Delaware Limited Liability Company, Defendants

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For Instant Technology, LLC, an Illinois limited liability company, Plaintiff: David Brian Ritter, LEAD ATTORNEY, Alison C Conlon, Austin Jennings Burke, Kaitlyn N. Jakubowski, Megan M. Lazar, Barnes & Thornburg LLP, Chicago, IL.

For Elizabeth Defazio, Laura Rehn, Megan Marker, Bethany Meek, Erin Bauer, Joel Katz, individuals, Connect Search LLC, A Delaware Limited Liability Company, Andrea Katz, individuals, Defendants: Hal J. Wood, LEAD ATTORNEY, Megan Mae Mathias, Richard Zachary Wolf, Horwood Marcus & Berk Chartered, Chicago, IL.

For Richard J Lee, Material Witness: Maurice Grant, LEAD ATTORNEY, Ryenne Chantelle Shaw, Grant Schumann, LLC, Chicago, IL.

For Elizabeth Defazio, Counter Claimant: Hal J. Wood, LEAD ATTORNEY, Megan Mae Mathias, Richard Zachary Wolf, Horwood Marcus & Berk Chartered, Chicago, IL.

For Instant Technology, LLC, an Illinois limited liability company, Counter Defendant: David Brian Ritter, LEAD ATTORNEY, Austin Jennings Burke, Barnes & Thornburg LLP, Chicago, IL.

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MEMORANDUM OPINION AND ORDER CONTAINING COURT'S FINDINGS OF FACT AND CONCLUSIONS OF LAW

JAMES F. HOLDERMAN, United States District Judge.

Plaintiff Instant Technology, LLC (" Instant" ), a company in the information technology (" IT" ) staffing industry, sued five of its former employees, Ms. Elizabeth DeFazio (" DeFazio" ), Ms. Laura Rehn (" Rehn" ), Ms. Megan Marker (" Marker" ), Ms. Bethany Meek (" Meek" ), and Ms. Erin Bauer (" Bauer" ) (collectively " Employee Defendants" ), as well as two non-employees, Mr. Joel Katz (" Joel Katz" ) and Ms. Andrea Katz (" Andrea Katz" ), and one of Instant's competitors, Connect Search, LLC (" Connect" ) (collectively " Connect Defendants" ) (altogether " Defendants" ). Instant sought in its First Amended Verified Complaint (" Amended Complaint" ) (Dkt. No. 40 (" Am. Compl." )) injunctive and other relief from the Employee Defendants for what Instant alleged to be breach of employment agreements, breach of fiduciary duty, and alleged violations of the Computer Fraud and Abuse Act (" CFAA" ), 18 U.S.C. § 1030.

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Instant also sought injunctive and other relief from all Defendants for what Instant alleged to be violations of the Illinois Trade Secrets Act (" ITSA" ), 765 ILCS 1065/2-3, tortious interference with business expectancies, and civil conspiracy, and from DeFazio and the Connect Defendants for what Instant alleged to be tortious interference with contract.

In April 2014, the court conducted a bench trial at which Instant withdrew its requests for injunctive relief. The parties presented evidence regarding Instant's other claims, as well as DeFazio's counterclaim against Instant for what DeFazio alleged were unpaid portions of her 2011 bonus. At the trial, Instant presented the testimony of twelve witnesses. Ms. Ronna Borre (" Borre" ), Instant's President and CEO, testified about Instant's business and revenue, the IT staffing industry, and the Defendants' alleged conduct. Mr. Alfredo Aoun (" Aoun" ), DeFazio's partner, testified about his computerized backup of DeFazio's email. The five Employee Defendants each testified about Instant's business, the IT staffing industry, their employment at Instant, and the formation of Connect. Joel Katz and Andrea Katz each testified about the IT staffing industry and the formation of Connect. Ms. Rebecca Rouhoff (" Rouhoff" ), an Instant administrative employee, testified about her observations after the departure of the Employee Defendants. Mr. Wolfe Wilke (" Wilke" ), Director of Operations-Forensic Services at the Barrington, Illinois office of CyberControls, LLC, testified about his examination of the Employee Defendants' computers after their termination or resignation from Instant. Mr. Anthony Raimonde (" Raimonde" ), a former accountant at Instant, testified regarding Instant's purported losses as a result of Defendants' conduct.[1] Instant also offered certain parts of the deposition testimony of Ms. Christina Peterson. (PTX 328.) Instant did not present the testimony of its previously disclosed damages expert, Dr. Dwight Stewart. Defendants presented the testimony of six witnesses, including the five Employee Defendants and Joel Katz.

After considering all of the evidence presented at the April 2014 trial, the court finds the Employee Defendants did not breach their Employment Agreements with Instant (Count I) or their fiduciary duties to Instant (Count IV). The court further finds that none of the Defendants violated the Illinois Trade Secrets Act (Count II) or the Computer Fraud and Abuse Act (Count V), nor did any of the Defendants commit any common law torts (Counts III and VI) or participate in a civil conspiracy (Count VII). Finally, the court finds that DeFazio did not prove her counterclaim seeking money damages. This Memorandum Opinion and Order, as outlined below, constitutes the court's findings of fact and conclusions of law.

I. Stipulations of Uncontested Facts

A. The Parties
B. Instant's History and Business
C. Employee Defendants' Employment at Instant and Employment Agreements
D. Events of October 2011 through December 2011
E. Events of January 2012
F. Connect Search Solicitations and Placements

II. Further Factual Findings

A. Instant's Business
B. Instant's Workforce

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C. Instant's Business Data
D. Instant's Candidate Hotlist
E. Instant's Candidate Roll-Off List
F. Instant's Employees' Data Practices
G. Events of 2011 and 2012
H. Instant's Investigation after Employee Defendants' Terminations and Resignations
I. Startup of Connect

III. Applications of Fact and Conclusions of Law

A. Employee Defendants' Alleged Breach of Employment Agreements (Count I)
i. Inadequate Consideration for Restrictive Covenants
ii. Non-Solicitation Covenants in Employee Defendants' Agreements with Instant
a. Non-Solicitation of Instant's Candidates
b. Non-Solicitation of Instant's Clients
c. Instant's Purported Confidential Information
iii. Non-Recruitment Covenants in Employee Defendants' Agreements with Instant
iv. Non-Disclosure Covenants in Employee Defendants' Agreements with Instant
B. Defendants' Alleged Violation of Illinois Trade Secrets Act (Count II)
C. DeFazio's and Connect Defendants' Alleged Tortious Interference with Contract (Count III)
D. Employee Defendants' Alleged Breach of Fiduciary Duty (Count IV)
E. Employee Defendants' Alleged Violation of the Computer Fraud and Abuse Act (Count V)
F. Defendants' Alleged Tortious Interference with Business Expectancies (Count VI)
G. Defendants' Alleged Civil Conspiracy (Count VII)
H. DeFazio's Counterclaim for Alleged Breach of Agreement and Violation of Illinois Wage Payment and Collection Act

IV. Conclusion

I. Stipulations of Uncontested Facts

Before the trial commenced, consistent with the high level of professionalism displayed by the counsel of record throughout pendency of this litigation and with the court's appreciation, the parties agreed to stipulations regarding numerous facts which this court adopts as uncontested. The stipulated facts as set forth in the parties' final pretrial order (Dkt. No. 266-1) are as follows:

A. The Parties

1. Connect Search is a Chicago-based staffing firm that specializes, in part, in the recruitment and placement of IT professionals.

2. DeFazio, Rehn, Marker, Meek and Bauer are all former employees of Instant.

3. DeFazio, Marker, Meek and Bauer currently work for Connect Search. Rehn formerly worked for Connect Search.

4. DeFazio is the President and Co-Founder of Connect Search. She is also a member of the Board of Managers of Connect Search.

5. DeFazio owns approximately 15% of Connect Search.

6. During her employment at Connect Search, Rehn was a Vice President of Sales.

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7. Marker is a Vice President of Sales at Connect Search. She is also an owner of Connect Search.

8. Meek is a Vice President of Recruiting at Connect Search.

9. Bauer is a Vice President of Recruiting at Connect Search.

10. Defendant Joel Katz has worked in the staffing business for more than 20 years.

11. Joel Katz is the former President and CEO of Addison Search, a professional staffing company he founded in 1999. Joel Katz was an owner of Addison Search until 2011.

12. Joel Katz is a member of the Board of Managers of Connect Search.

13. Joel Katz is the Chief Investment Officer of a company called Brown Lab Investments, LLC (" Brown Lab" ).

14. Brown Lab is the majority owner of Connect Search.

15. Defendant Andrea Katz is married to Joel Katz.

16. Andrea Katz has worked in the staffing business for more than 20 years.

17. Andrea Katz co-founded Addison Search with Joel Katz. She was employed by Addison Search until early 2010 and was an owner of Addison Search until 2011.

18. Andrea Katz is a member of the Board of Managers of Connect Search.

19. Andrea Katz is the majority owner of Brown Lab and currently serves as Brown Lab's Chief Executive Officer. Andrea Katz organized Brown Lab in 2011 as an investment vehicle.

20. Prior to forming Connect Search, Joel Katz and Andrea Katz had worked with DeFazio.

21. Bauer formerly worked for Addison Search.

B. Instant's History and Business

22. Instant was formed in 2001 by its President and CEO, Borre.

23. Borre left a position at a global staffing company to launch Instant.

24. Instant is wholly-owned by Borre.

25. As part of its business, Instant helps companies locate IT professionals needed to fill temporary, permanent and/or temporary-to-permanent positions.

C. Employee Defendants' Employment at Instant and Employment Agreements

26. DeFazio worked for Instant from 2003 until January 3, 2012.

27. DeFazio's most recent title at Instant was Executive Vice President, Sales & Operations.

28. DeFazio reported directly to Borre.

29. DeFazio received over $300,000 in base salary, bonus and commissions in 2010, and more than $222,000 in total compensation in 2011.

30. Rehn began working for Instant on or about June 17, 2010. She held the position of Senior Account Manager, and was responsible for, among other duties, maintaining and increasing sales of Instant's services and developing new clients and accounts.

31. Marker began working for Instant on or about March 24, 2010. She held the position of Senior Account Manager, and was responsible for, among other duties, maintaining

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and increasing sales of Instant's services and developing new clients and accounts.

32. Meek began working for Instant on or about January 7, 2008. She held the position of Lead/Senior Recruiter, and was responsible for, among other duties, identifying and vetting placement candidates' skills and qualifications, submitting candidates' profiles to the company's account managers, and helping to facilitate the placement of the candidates with clients.[2]

33. Meek also conducted training workshops and wrote Instant's training manual.

34. Bauer worked at Instant from 2005 to 2008. She later returned to Instant in March of 2011. Bauer held the position of Recruiter, and was responsible for, among other duties, identifying and vetting placement candidates' skills and qualifications, submitting candidates' profiles to the company's account managers, and helping to facilitate the placement of the candidates with clients.

35. Instant divides its employees between sales (client side) and recruiters (candidate side). Meek and Bauer were on the candidate side, and were responsible for sourcing candidates to fill open positions at clients. Marker and Rehn were on the client side, and were responsible for generating sales and facilitating placements of candidates at clients. At the time of her termination, DeFazio was in a sales role on the client side of the business.

36. DeFazio, Rehn, Marker, Meek and Bauer signed employment agreements with Instant (collectively, the " Employment Agreements" or singularly, the " Employment Agreement" ).

37. Among other things, the Employment Agreements contained a " Covenant Not to Solicit Instant's Clients or Employees," which states, in relevant part:

Employee shall not directly or indirectly, for a period of two years after termination of Employee's employment with Instant, perform IT Staffing Services for or accept IT Staffing Services business from, or assist any person, firm, partnership, corporation or other entity to perform IT Staffing Services for or accept IT Staffing Services from, any of [Instant's Serviced Clients]. In furtherance of the foregoing, Employee agrees that ... (a) Employee shall not contact or solicit any of Instant's Serviced Clients for a period of two years from termination of Employee's employment with Instant ... (b) Employee shall not notify any of Instant's Serviced Clients of the termination of Employee's employment with Instant ... (c) Employee shall not notify any of Instant's Serviced Clients where Employee is employed at any time during said period of two (2) years from termination of Employee's employment with Instant ...

(Employment Agreements at § 8 (referred hereafter as " Non-Solicitation Covenants" ).)

38. The " Covenant Not to Solicit Instant's Clients or Employees" ...


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